On the last day of October 2016, the first-ever shipment of Chinese motor gasoline to the U.S. was delivered to Buckeye’s Reading terminal in New York Harbor. The vessel took a circuitous route to New York, taking on cargo in the Hong Kong lightering zone, stopping in South Korea to take on another parcel of clean product, dropping off some benzene in Houston, and then finally heading to New York. That complicated journey suggests that the economics of a regular China-to-East Coast gasoline trade route are not there (at least for now), but the shipment highlights a trend: China is becoming more assertive as an exporter of petroleum products and the implications are global. In an international market defined by oversupply, inroads by China necessarily result in other producers losing market share. In today’s blog, we examine the impact of rising clean petroleum product exports—particularly from China, but also from India—and the corresponding ripple effects both on the world market and on U.S. refiners.

A structural shift in China’s desire to improve the efficiency of privately held, so-called “tea-pot” refineries has opened the door to tea-pot refiners being free—for the first time—to export their clean products to the global market. Clean products include gasoline and middle distillates (diesel, fuel oil, jet fuel). Further supporting this emerging trend is that these same tea-pot refiners are finding it harder to sell their products in their home market. The combination of tighter Chinese environmental regulations and slowing domestic demand growth have created a surplus of Chinese petroleum products, which are now finding their way to compete overseas. As you might expect, the first area in the U.S. to feel the impact of a larger outflow of petroleum products from China is the West Coast. U.S. West Coast imports of middle distillates—gasoil and jet fuel—from China more than doubled to 11,600 b/d through the middle of November 2016 compared to the average last year. In 2015, Chinese imports were less than 6% of total middle distillate deliveries to the West Coast, while so far in 2016, China’s market share stands at 9.6%. While the short-term impact is muted, it may only be the beginning. While middle distillate exports from China to the West Coast are up, ClipperData’s cargo tracking data shows that there were no similar exports of gasoline into the West Coast—including blending components and naphtha. This is partly because Chinese refiners cannot meet stringent West Coast gasoline specifications, but also because China, overall, is short gasoline (though its exports of gasoline are growing, as we’ll get to in a moment).

To access the remainder of Kung Fu Fighting (for Market Share) - China's Teapot Refiners Making Ripples Overseas you must be logged as a RBN Backstage Pass™ subscriber.

Full access to the RBN Energy blog archive which includes any posting more than 5 days old is available only to RBN Backstage Pass™ subscribers. In addition to blog archive access, RBN Backstage Pass™ resources include Drill-Down Reports, Spotlight Reports, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. If you have already purchased a subscription, be sure you are logged in For additional help or information, contact us at info@rbnenergy.com or 888-613-8874.